Mys­tery of how Ghosn got away with it

Weeks af­ter his ar­rest, no one knows how one of the world’s most vis­i­ble bosses hid $70m

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HOW could one of the world’s most vis­i­ble em­ploy­ees go about hid­ing

$70 mil­lion (R970m) worth of salary and ben­e­fits paid to him by one of the world’s big­gest com­pa­nies, with­out the com­pany know­ing it?

Two weeks af­ter Tokyo prose­cu­tors ar­rested Car­los Ghosn for al­legedly un­der-re­port­ing his com­pen­sa­tion, that ques­tion is still unan­swered.

What is cer­tain is that Nis­san Mo­tor Com­pany’s own cor­po­rate gover­nance rules gave un­usual pow­ers to its for­mer chair­per­son, a busi­ness celebrity who was given ex­tra­or­di­nary def­er­ence for hav­ing once res­cued the au­tomaker from fi­nan­cial ruin. Those pow­ers in­cluded near-to­tal say over how much – and how – he was paid, ac­cord­ing to Nis­san’s own in­ter­nal rules.

Sev­eral peo­ple fa­mil­iar with the prose­cu­tors’ in­ves­ti­ga­tion now say the probe ap­pears to hinge on a rel­a­tively ar­cane point of ac­count­ing – whether re­tire­ment pay­ments were prop­erly booked. Whether or not Ghosn broke Ja­pan’s se­cu­ri­ties law by feed­ing the wrong num­bers to Nis­san’s board and its ac­coun­tants (at this point, the al­le­ga­tions are un­proven), cor­po­rate gover­nance ex­pert Jamie Allen says the deeper ques­tion is how any­one could have got­ten away with some­thing like that.

“It all comes back to a lack of in­ter­nal con­trols,” said Allen, head of the Hong Kong-based Asian Cor­po­rate Gover­nance As­so­ci­a­tion. “If the board gen­uinely didn’t know that the dis­clo­sure of his re­mu­ner­a­tion was in­ac­cu­rate, that doesn’t say much for gover­nance. And if they did know, they should take col­lec­tive re­spon­si­bil­ity for the fail­ure.”

Fights over pay have been a con­stant for Ghosn al­most since the mo­ment he took over in 1999 as chief op­er­at­ing of­fi­cer of the then-trou­bled Ja­pa­nese au­tomaker. Early on, he caught flak for re­ward­ing Nis­san’s se­nior man­agers for per­for­mance in­stead of se­nior­ity.

Later, in 2010, when Ja­pan’s new rules on dis­clo­sure of ex­ec­u­tive com­pen­sa­tion outed him as the coun­try’s top-paid boss, he caught flak again. The $10m he re­port­edly made that year might not have been out of line by West­ern stan­dards, but it ran­kled in Ja­pan where the brash Franco-brazil­ian ex­ec­u­tive was seen to be tak­ing home six times what Toyota Mo­tor Corp’s chair­per­son made.

It now ap­pears that even those num­bers were un­der­stated. Ghosn’s salary had ac­tu­ally been much higher be­fore pub­lic dis­clo­sure was re­quired. To min­imise crit­i­cism, a plan was de­vised to de­fer about half his an­nual pay un­til af­ter re­tire­ment, keep­ing the num­bers off the books, ac­cord­ing to peo­ple fa­mil­iar with the in­ves­ti­ga­tion.

Ghosn has de­nied any rules were bro­ken around de­ferred com­pen­sa­tion, peo­ple with di­rect knowl­edge of the case have said.

His de­fence is that the amount of such pay wasn’t cer­tain, and there­fore it was ap­pro­pri­ate to omit it from se­cu­ri­ties fil­ings, they said. Ghosn hasn’t had an op­por­tu­nity to re­spond in pub­lic be­cause he’s held in de­ten­tion, where Ja­pa­nese law al­lows peo­ple to be kept for weeks with­out be­ing charged.

Prose­cu­tors were alerted to

Ghosn’s al­leged wrong­do­ing af­ter a whis­tle-blow­ing tip from in­side Nis­san. The tim­ing prompted some an­a­lysts to say the scan­dal may have been man­u­fac­tured in or­der to block a merger that Ghosn was ad­vo­cat­ing be­tween Nis­san and its part­ner, Re­nault SA.

If Ghosn’s celebrity once helped him rally Nis­san’s troops, it may have also made mis­be­haviour eas­ier. In­side the com­pany, an un­ques­tion­ing cult-of-ghosn took root, ac­cord­ing to sev­eral peo­ple fa­mil­iar with the sit­u­a­tion. By 2015, when Ja­pan in­tro­duced its cor­po­rate gover­nance code, it was clear even to some within the com­pany that Nis­san was an out­lier in terms of how much con­trol it gave its chair­per­son.

“We had gover­nance in name only,” Nis­san chief ex­ec­u­tive Hiroto Saikawa told the me­dia af­ter Ghosn’s ar­rest.

“Ghosn’s team thought that the best way to en­sure gover­nance was to con­cen­trate power,’’ said Satoshi Egi, an ex­pert on cor­po­rate com­pli­ance.

Ja­pan’s cor­po­rate gover­nance code is closer to a wish-list than a set of ac­tual reg­u­la­tions. Firms aren’t forced to com­ply, but must give share­hold­ers an ex­pla­na­tion in any in­stance where they haven’t.

Nis­san spokesper­son Ni­cholas Max­field de­clined to com­ment for this story. |

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